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Saturday, 20 March 2010

Valuer for HDB units, an easy job?

After years of painful search and watching the property prices continue to defy recession forces, a friend of mine finally settle for flat in a mature estate with about $50k above (already high) valuation. Querying the valuation of the flat, I discovered it is valued at the higher tail end amongst recent HDB resale transaction. And yet my friend is paying $50k above this.

HDB valuation methodology

I came across a recent article to the Straits Times forum from the Singapore Institute of Surveyors and Valuers commenting on HDB valuation:

For homogeneous properties such as HDB flats, the common valuation method adopted is the direct comparison approach. This approach is similar to that used by a potential buyer when considering the purchase of a flat. He would look at the location, consider the age, size, design, height and other important characteristics of the flat and compare the prices paid for comparable flats in the locality.

src: Straits Times Forum: HDB flats: No new valuation method

However, it seems to me the valuer simply value the flat based on recent transaction, pegging to the sales in the higher percentile.

Valuer and Stock Analyst

I commented on market-biased analyst before in my earlier article, Analyst's analysis --- to be taken with a tonne of salt? that many simply value stocks based on market sentiment, i.e. using high P/E ratio to derive stock valuations during market exuberance and conversely using low P/E ratio when sentiments were poor. Valuing HDB properties by tagging on to the high end of recent transacted prices is no different.

Boom Bust Cycle - here we go again

Sentiments in the property market is definitely pointing north. By valuing flats based on the higher percentile of recent transactions and willing buyers paying hefty cash over value over the inflated valuations to form the next higher transaction price, only lead to self-sustaining perpetual runaway valuations. The stock market parallel being investors bidding up stock prices fueling analysts to issue buy calls with even higher valuations by finding means to justify higher P/E ratios.

The Tipping Point

Any sane investor who lived long enough will know that surging prices will not reach the moon one day. Many events, usually unexpected, could put an end to all such craze and caught many by surprise even if there will be more 'experts' coming out to warn people as prices continue to defy gravity. The direct opposite will occur when prices tumble as all tried to exit the market at the same time. Stock analysts will slap stocks with ever lower P/E ratios as market sentiments continue to worsen. When sellers of HDB flats begin to sell below valuations that they finally agree to be over inflated, this leads to lower transaction prices and hence even lower valuations for other sellers.


While price surging and plunging in accordance to economic cycles is a natural phenomenon, the amplitude can be better managed if all valuers (analyst and property valuers) can be more impartial in their analysis, anchoring their judgment on solid fundamentals instead of ambient sentiments. Buyers (flats or stocks) need to do their part too, in not outbidding each another to ridiculous prices.

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Saturday, 6 March 2010

Do we need to monitor the stock market so closely?

Hectic but fruitful life after a new entrant

Ever since my girl was born and my confinement lady left, life have been very hectic, tiring and sometimes frustrating. Eventually, when she learnt to smile at us, its had been one of the happiest moment of my life and instantly felt all this was worth it :). Looking back, my last post was more than 3 months ago and I haven't really got the time to meddle with my portfolio or look up company reports ever since.

Missed opportunities?

As my girl grow up, nearing her fourth month on earth (not counting the time she spent evolving in my wife's womb), she finally seems to be able to adjust to our earthly culture and give me some peace to do my stuff without constantly crying and requiring us to decipher what she want. So finally I an able to find time to stock take on my portfolio, read up a little on my companies and what had gone on in the last 3 months. Surprisingly (at least to me), I neither didn't miss much of the action nor any really great opportunities. As far as fundamentals go, the reporting seasons only occur once every 3 months and the last one was just concluded. Looking at the results and outlook stated in the financial reports of my companies and those I'm interested in, none really warrant much action and there isn't really much changes in their stock price for me to bang wall on missed opportunities.

Investment style for the busy

I recall speaking to friends or colleagues on investing. Many who believe in the need to invest would rather outsource the task via funds, citing the reason of being too busy to monitor the stock market. Looking at my current situation and looking back, I can confidently reiterate that self driven investment doesn't really need to take up alot of one's time.

Exploiting economic cycles

For the ultra-busy who have nothing much to spare other than to breathe, they can easily exploit economic recessions the likes of 1983, 1997, 2001/02 and 2008/09 to pick up decent blue chips are cut throat discounts. All they need to do is understand the business of these blue chips and are confident they will survive the economic crisis. Once the storm blow over, they will be siting on huge paper profit.

Exploiting business changes

For those who can afford a little more time, they only need to check SGX every 3 months during reporting seasons for updates. There will still be some meat left to exploit business turnarounds (which will take a few quarters for the company to return to solid performance) or new lucrative business ventures (which will also take several quarters before these new directions pay off handsomely in terms of better profits).


Looking forward, I will not have the time to invest or blog as much as I like to, but I can be sure I will still be able to realise my goals for my investment.